THE way was cleared for the rapid expansion of a European based hedge fund industry this week when the European Parliament voted to relax rules which should lead to the development of retail hedgefunds.

Speaking in the debate Scottish MEP John Purvis said: “There is no reason to deny European citizens access to these interesting investment opportunities. But we feel their interests will be better safeguarded if they are available within EU jurisdictions and subject to appropriate regulation.

“They also will provide opportunity for our European investment professionals to enhance their skills and build high value businesses and jobs. And, not least, capital will be attracted to our businesses and industries here in Europe rather than in America and other parts of the world.”

It now looks almost inevitable that a retail hedge fund industry will develop in the UK. There is certainly interest from investors, in part because the out-performance of short-selling strategies, in particular, in the recent bear market focused attention on the industry.

And fund management groups have been champing at the bit for the right to sell to UK small investors.

In the US, which has the world’s most developed hedge fund industry with the bulk of the GBP 413 billion invested in hedge funds globally, there are strict rules governing investment, and even the ultra-rich are advised not to place more than 10 per cent of personal net worth in hedge funds.

George Van, chairman of hedge fund monitoring group Van Hedge, warned last year that any hedge fund strategy can be a disaster waiting to happen if market conditions change.

However, despite this and a report last year by Dr Oonagh McDonald in which she recommended that this traditional 10 per cent cap be maintained for retail investors and in stark contrast to the stance adopted by the UK’s Financial Services Authority last year, MEPs have decided not to recommend imposing restrictions on who can buy hedge funds. Instead, they have decided it will be up to regulators in individual countries to determine what financial thresholds are set.

Purvis acknowledged there were dangers, but felt the parliament’s recommendation that strict controls be placed on who could operate and sell hedge funds would give investors sufficient protection.

THE way was cleared for the rapid expansion of a European based hedge fund industry this week when the European Parliament voted to relax rules which should lead to the development of retail hedgefunds.

Speaking in the debate Scottish MEP John Purvis said: “There is no reason to deny European citizens access to these interesting investment opportunities. But we feel their interests will be better safeguarded if they are available within EU jurisdictions and subject to appropriate regulation.

“They also will provide opportunity for our European investment professionals to enhance their skills and build high value businesses and jobs. And, not least, capital will be attracted to our businesses and industries here in Europe rather than in America and other parts of the world.”

It now looks almost inevitable that a retail hedge fund industry will develop in the UK. There is certainly interest from investors, in part because the out-performance of short-selling strategies, in particular, in the recent bear market focused attention on the industry.

And fund management groups have been champing at the bit for the right to sell to UK small investors.

In the US, which has the world’s most developed hedge fund industry with the bulk of the GBP 413 billion invested in hedge funds globally, there are strict rules governing investment, and even the ultra-rich are advised not to place more than 10 per cent of personal net worth in hedge funds.

George Van, chairman of hedge fund monitoring group Van Hedge, warned last year that any hedge fund strategy can be a disaster waiting to happen if market conditions change.

However, despite this and a report last year by Dr Oonagh McDonald in which she recommended that this traditional 10 per cent cap be maintained for retail investors and in stark contrast to the stance adopted by the UK’s Financial Services Authority last year, MEPs have decided not to recommend imposing restrictions on who can buy hedge funds. Instead, they have decided it will be up to regulators in individual countries to determine what financial thresholds are set.

Purvis acknowledged there were dangers, but felt the parliament’s recommendation that strict controls be placed on who could operate and sell hedge funds would give investors sufficient protection.